EURUSD Continues Decline As Market Awaits Next ECB Policy Meeting

The Euro has been in pretty much a freefall over the past 6 trading sessions, as the market has been building up bets on hawkish policy from the Federal Reserve. Last week EURUSD started trading at 1.11368 to close Friday at 1.09711. The market has remained under 1.10000 since the start of the week, while the market waits for tomorrow’s ECB monetary policy announcement on interest rates at 1:45pm.

There had been rumors last Thursday that the ECB would soon begin tapering its quantitative easing program, basically reducing the volume of bonds it would be buying. This sunk government bonds denominated in Euro, but helped the currency rally from a low of 1.09847 to a close at 1.10548 for the day. The bullish sentiment lasted a day only and the downward decline for the Euro continued the very next day on the back of bullish economic data from the US.

Volatility could be on the rise again tomorrow at 2:30pm when the ECB president, Mr. Draghi, will hold a scheduled press conference after the monetary policy meeting. More light should be shed on the size and continuation of the bond buying program, as well as the central bank’s thoughts as to how well the economy is doing.

If you think Mr. Draghi’s speech will give more dovish comments and thatthe Euro may continue to fall in the immediate reaction to his words, then all you need to do is sell EURUSD with Deal Cancellation protection. This feature allows you to take a position and set-up a maximum stop loss, which if hit during the first hour, will only cost you the premium you paid to buy Deal Cancellation protection.

Deal Cancellation gives you the option to close a trade, during 1 hour, losing no more than the premium you paid, while allowing you to gain from any positive movement. The screenshot below shows that to sell €35,000 with a maximum stop loss of €318.72, would cost €14.47 in Deal Cancellation protection.

If the market falls from 1.09799 you would be able to close your trade for a profit less the cost of the Deal Cancellation protection. Let’s say price drops to 1.09099, your profit would be €223.10 - €14.47 = €208.63, while your maximum risk for 1 hour would be €14.47.